When an economy is based on healthy, sustainable activity with a balance of production and consumption, the type of depression we are in can’t happen. In our consumption-based economy, on the other hand, nothing can “stimulate” things back on track. This is because the track we were on is unsustainable. There’s no going back on it. American consumers can’t spend & consume more today in an effort to “save” the economy because we already spent and consumed the goods of today.

Despite the “green shoots” talk that all the economists and politicians are spreading on TV and in magazines and newspapers (pay no mind that these are the very people who didn’t see the crash coming–we are expected to now value their opinion about what’s going to happen next), what’s next isn’t good for the general economy. As illustrated by Ian Mathis of at Daily Reckoning, by the end of the year about 1.5 million jobless Americans will exhaust their unemployment benefits.

We know that unemployment is sky high right now (10% official figures and 20% as figured by shadowstats.com), but millions of those jobless Americans are receiving checks from the government that are continuing to pay for their rent, groceries, Venti 7 Pump White Mochas, etc. By year’s end, about 1.5 million Americans will no longer have a source of income. In other words, the further reduced consumption affiliated with unemployment hasn’t even come home to roost yet.

Waiting for the “general economy” to be brought back to life will turn out to be a disappointing plan. Your personal economy is what matters, and thriving is a matter of what you make for yourself. Just as the Soviet Union taught us that central planning doesn’t work, we will relearn that lesson as central planning continues to fail in the United States. Don’t wait around for stock markets to go into a long term rebound (as opposed to the bear market rally or “bounce back” that comes before the next leg down in every stock market crash) or for the government to get your job back for you. If anyone’s going to bring your prosperity, it’s going to be you!

Finally, it’s here! Amazon won’t have it in stock for another 2 to 4 weeks, but you can use the buy now button above to order the book and I’ll ship it directly to you immediately. (If you’ve already ordered one, it’s going out to you today.)

If you’re reading my blog, I assume you want to take control of your finances and your life. Get the book to find out…

Recently I received a question from somebody looking into self-directed IRA/401(k) investment for themselves. They said, “I ran this by my financial planner in New York who said to roll over my IRA to put some of its money into my home is illegal.” This statement is technically correct. Putting IRA money into his primary residence would be a prohibited transaction. The disturbing thing about the situation is that these three people (a person, their realtor, and their financial planner) could all be on the same page about something so fundamentally ridiculous.

The misconception

In the past 10 years, many people think “real estate investing” equals “putting money into my home”. Their home can’t be an investment in the first place because they are paying for it rather than having it paid for by a renter.

When somebody wants to help people rationalize buying the stuff they sell, they often call it an “investment”. Bill Clinton started changing the way people thought about government spending (when he was increasing it) by calling it an investment.

An investment or a consumer product?

Selling a primary residence to a home buyer is selling a consumer product. It’s for their use. They can buy what they really need. Or they could get extravagant and buy the Lexus/Mercedes version of a home and spend more. Either way, it’s a consumer product if they are paying for it and using it themselves.

But realtors followed Clinton’s spin move and started calling home buying an investment. This really caught on once Fannie Mae, Freddie Mac, and the Fed all took actions to artificially inflate home prices in order to defer the recession of 2002. Once you could buy this consumer product (the home) and then have it rapidly increase in value (supposedly) and realize this value by selling it or doing a refinance cash out, then the talk about the home being an investment seemed to make sense.

Today, the bubble is over, and the illusion that your home is an investment should be easy to correct. If it was an investment, then somebody else would be paying the mortgage. If somebody else was paying the mortgage, they’d probably live in it instead of you.

It’s not to say that buying a home is a stupid thing to do. That can only be decided on a case-by-case scenario that depends on the buyer and the home in question. Buying a home can be a financially beneficial thing to do in some cases, but it hardly could be truthfully classified as “real estate investing”.

Our economy is 70% consumerism. That means it is mostly based on individuals buying stuff. So the current setup of our economy holds two basic facts:

Individuals buying more stuff than they can afford to buy (based on their income) has a net effect that is good for the economy.

When individuals lower their spending and save and invest money, the net effect is bad for the U.S. economy.

That said, should we even care about “the economy” in its current setup? If individuals were really doing what is good for themselves (saving and investing), it would be terrible for the economy.

So could Obama’s stimulus really work? Absolutely not. Not if you consider “it really working” to mean more than just temporarily. We don’t need a stimulus. We don’t need a boosted economy. We need a changed economy. There are only three ways out of [Read more…]

…our current circumstances. Rather than ignore the current economic problems, I choose to acknowledge this elephant in the living room during our Thanksgiving holiday.

We are bombarded with headlines like “What will fix our economic problems?” It is absolutely silly. The recession is the solution to the problem of the asinine acts of American government, corporations, and consumers. There is no galactic lottery that our country can win. We have to play by the rules of the game that we started. No person or government can perpetually spend more money than they earn. Such behavior can only be temporary and always leads to self inflicted unpleasantness.

I truly am thankful for our recession because it should help cleanse our government and society of self destructive behavior. We are now forced to [Read more…]

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